Yours, Mine, Our Water: Where Correlative Rights End and

Oil and Gas, Natural Resources, and Energy Journal Oil and Gas, Natural Resources, and Energy Journal

Volume 6 Number 3

January 2021

Yours, Mine, Our Water: Where Correlative Rights End and Taking Yours, Mine, Our Water: Where Correlative Rights End and Taking

Begins Following Texas House Bill 3246 Begins Following Texas House Bill 3246

Charles P. Hosey

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477

ONE J Oil and Gas, Natural Resources, and Energy Journal

VOLUME 6 NUMBER 3

YOURS, MINE, OUR WATER: WHERE CORRELATIVE RIGHTS END AND TAKING

BEGINS FOLLOWING TEXAS HOUSE BILL 3246

CHARLES P. HOSEY

Table of Contents

I. Introduction ....................................................................................... 478 II. Division of Rights ............................................................................. 484

A. Use Versus Ownership ................................................................. 486 B. The Legal Relation of Water to Its Practical Use ........................... 487

1. From Groundwater to Well-Head .............................................. 488 2. From Well-Head to Mineral Formation and Back ...................... 490 3. Voluntary Agreements or Legislative Intervention ..................... 493

III. Legislative History and Importance .................................................. 495 A. Regulatory History of Oil and Gas in Texas .................................. 495 B. Legislative History and Intent of House Bill 3246 ......................... 499

1. Waste or Water? ........................................................................ 500 2. Protecting the Investment .......................................................... 501 3. What is “Beneficial Use?” ......................................................... 503

* Candidate for Juris Doctor, St. Mary’s University School of Law, 2021; B.A., Norwich

University, 2010; Captain, United States Army, Retired. The author would like to thank all the members

of the editorial board who gave invaluable comments and feedback. The author also thanks his father,

Peter E. Hosey, for fostering and encouraging an interest in the oil and gas industry.

Published by University of Oklahoma College of Law Digital Commons, 2021

478 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 IV. As Applied, Texas Natural Resource Code Chapter 122.002 is

a Taking ................................................................................................ 504 A. Current Interpretation of the Regulatory Taking Doctrine ............. 505

1. Standard of Review ................................................................... 506 B. Texas Natural Resources Code Chapter 122.002 is a Regulatory

Taking .............................................................................................. 507 1. Deprivation of Economic Use .................................................... 507 2. Substantially Legitimate State Interest ....................................... 509 3. Proper Exercise of Police Power? .............................................. 510

V. Conclusion ....................................................................................... 511

I. Introduction

The evolution of hydrologic fracturing has revolutionized America’s

economy on a global scale.1

Over the past 15 years, technology has made it

possible to extract billions of barrels and oil and gas from geologic

formations “once thought to be out of reach.”2However, with new methods

come new demands; technology provides the ways, water provides the

means.3Water provides not only the vehicle for bringing up the fractured

minerals extracted from the formation, it allows for the efficient processing

of hydrocarbons after exiting the well.4 To achieve energy independence

through hydrologic fracturing—massive quantities of fresh water are

needed.5

1. See Kondash, Andrew, and Avner Vengosh. Water footprint of hydrologic

fracturing, Environmental Science & Technology Letters 2, no. 10 (2015): 276-280

(describing the demand of relative volume of hydrologic fracturing in the context of

comparable industries).

2. Peter E. Hosey & Jesse S. Lotay, Quench My Thirst: Water Rights in the Context of

Water Treatment Technologies, 42 Oil, Gas & Energy Res. Law Sec. Report 21 (State Bar of

Texas, Fall 2017).

3. See Clark, Corrie E., Robert M. Horner, and Christopher B. Harto. Life cycle water

consumption for shale gas and conventional natural gas. Environmental science &

technology 47, no. 20 (2013): 11829-11836 (detailing the use of water throughout the

hydrologic fracturing process).

4. See López-Díaz, D.C., Lira-Barragán, L.F., Rubio-Castro, E., You, F. and Ponce-

Ortega, J.M., 2018. Optimal design of water networks for shale gas hydrologic fracturing

including economic and environmental criteria. Clean Technologies and Environmental

Policy, 20 (10), pp. 2311- 2332 (describing the reason why fracing requires fresh water).

5. See Blythe Lyons, John Tintera, Kylie Wright, Sustainable Produced Water Policy,

Regulatory Framework, and Management in the Texas Oil and Gas Industry: 2019 and

Beyond, Texas Alliance of Energy Producers, Independent Petroleum Association of

America, (Sept. 16, 2019), p.5, https://documentcloud.adobe.com/link/track?uri=urn%3

Aaaid%3Ascds%3AUS%3A2c7b5154-f581-47dc-9c19-314d82c8de05 [https://perma.cc/

ZG7C-3PGQ] (focusing on the statistics of oil and gas production in the major formations in

https://digitalcommons.law.ou.edu/onej/vol6/iss3/8

2021] Where Correlative Rights End and Taking Begins 479

Depending on the geologic formation, millions of gallons of water per

well utilizing the hydrologic fracturing method are required to maintain

steady operations.6 Fracing operations in the Eagle Ford Basin could use

between an estimated 943 million barrels (a barrel equal 42 gallons of

water) to as much as 5.3 billion barrels of water per year, depending on the

rate of productivity.7

Similarly, fracing operators in the Permian Basin

could reach 8.8 billion barrels of water per year by 2030.8

This amount of

water demand is equivalent to the yearly demand of the state of New

Jersey.9

It is estimated the United States demand for water in the use of

hydrologic fracing will grow exponentially as technology finds new

untapped formations.10

Technology will provide new ways to extract

minerals from the earth while conserving this valuable commodity, water.

As with any earthly mineral, fresh water is not unlimited. While concerns

have been increasing with regard to the use of virgin water during fracing

operations, especially during drought conditions, operators have been able

to efficiently extract precise amounts of groundwater according to each

Texas); Kondash, Andrew, and Avner Vengosh. Water footprint of hydrologic fracturing.

Environmental Science & Technology Letters 2, no. 10 (2015): 276-280. (explaining the use

of water during hydrologic fracturing requires massive quantities).

6. See Kondash, Andrew, and Avner Vengosh. Water footprint of hydrologic

fracturing. Environmental Science & Technology Letters 2, no. 10 (2015): 276-280.

(quantifying the number of gallons of water required to maintain a producing well).






ZG7C-3PGQ] (focusing on the statistics of oil and gas production in the major formations in

Texas).

8. Id.

9. See U.S. Dep’t of the Interior, U.S. Geological Surv., Cheryl A. Dieter, Molly A.

Maupin, Rodney R. Caldwell, Melissa A. Harris, Tamara I. Ivahnenko, John K. Lovelace,

Nancy L. Barber & Kristin S. Linsey, Estimated Use of Water in the United States in 2015,

Circular 1441, 9 (June 19, 2018), https://pubs.er.usgs.gov/publication/cir1441

[https://perma.cc/272A-PGX7] (quantifying the use of the fresh water needs of the state of

New Jersey in order to compare it to the demand for fresh water usage in fracing operations).

10. See Jean-Philippe Nicot, Anna K. Hebel, Stephanie M. Ritter, Steven Walden1,

Russ Baier1, Peter Galusky, James Beach, Richard Kyle, Leigh Symank & Cari Breton, Tex.

Water Dev. Bd., Current and Projected Water Use in the Texas Mining and Oil and Gas

Industry, 205 (June 2011), http://www.twdb.texas.gov/publications/reports/contracted_

reports/doc/0904830939_MiningWaterUse.pdf [https://perma.cc/U2GP-2F6X] (utilizing a

holistic view of future water use projected in Texas fracing operations).


http://www.twdb.texas.gov/publications/reports/contracted_reports/doc/0904830939_MiningWat

http://www.twdb.texas.gov/publications/reports/contracted_reports/doc/0904830939_MiningWat

480 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 formation.

11 Anticipating the growing need for freshwater, operators of

fracing wells have developed recycling techniques to purify flowback water

able to be utilized again.12

On average, operators have developed a way to

recycle up to 40% of the original water used in fracing operations so that it

could be used again—without the need to use additional virgin freshwater.13

Such virgin groundwater is distinguished from water produced from oil

bearing formation, which formation water is not covered in this comment.

However, much of the recycled water product was not used again for

fracing, but sold by operators for other industry needs or used on other

tracts of land; by selling this recycled water or by using on other tracts of

land, operators have created an economy that not only reduces their

operating costs, but can also be said to limit the environmental impact.14






ZG7C-3PGQ] (describing how operators have become very efficient at using exact fresh

water quantities).

12. See Water Conservation & Technology Center, Fact Sheet Planning Component 8:

The Eagle Ford Hydrologic Fracturing Water Planning Services, Texas A&M Univ. (Jan.

2013) (on file with author) (describing the water purification systems utilized in fracing

operations); see also Shale and Tight Resources, https://www.chevron.com/operations/shale

[https://perma.cc/H9Z7-CNFX] (last visited Dec. 29, 2019) (describing how a large producer

has taken advantage of water recycling technology in the fracing industry).

13. See generally Gabriel Collins, Frac Ranching vs. Cattle Ranching: Exploring the

Economic Motivations Behind Operator-Surface Owner Conflicts over Produced Water

Recycling Projects, Issue Brief, Baker Inst. for Public Pol’y, Rice University (Oct. 17, 2017)

(quantifying the amount of recycled water operators can use again or sell); Jason

Schumacher and Jennifer Morrissey, The Legal Landscape of "Fracing": The Oil and Gas

Industry's Game-Changing Technique Is Its Biggest Hurdle, 17 Tex. Rev. Law & Pol. 239

(Spring 2013) (describing the amount of flowback water generally produced in one well

when hydrologic fracing).

14. See Peter E. Hosey & Jesse S. Lotay, Quench My Thirst: Water Rights in the

Context of Water Treatment Technologies, 42 Oil, Gas & Energy Res. Law Sec. Report 21

(State Bar of Texas, Fall 2017) (describing how the Operators have created a market for

waste water that would have otherwise been permanently lost through traditional disposal

methods). See also, Gabriel Collins, Frac Ranching vs. Cattle Ranching: Exploring the

Economic Motivations Behind Operator- Surface Owner Conflicts over Produced Water

Recycling Projects, Issue Brief, Baker Inst. for Public Pol’y, Rice University (Oct. 17, 2017)

(describing the value of water owned by surface owners in a number of different industrial

uses); 2019 Sustainability Report, Sustainable Development Program, Pioneer Natural

Resources, http://www.pxd.com/sites/default/files/reports/2019-Sustainability-Report.pdf

[https://perma.cc/2MQW-2WKV] (outlining the way a major operator will “Increasing the

use of recycled produced water in hydrologic fracturing”).


http://www.pxd.com/sites/default/files/reports/2019-Sustainability-Report.pdf


With the price of recycled water selling from ten to seventy-five cents per

barrel, it is estimated operators can make over one million dollars per well

per production cycle.15

From the perspective of the operator, recycling

fracing water is a matter of economics.

The expansion of hydrologic fracing has made Texas not only the

industry leader, but the legislative vanguard of oil and gas exploration and

extraction.16

Over and over again, it is to Texas to which other states mirror

their fracing regulations.17

The Texas Railroad Commission (“RRC”) has

been steady in its regulation of the oil and gas industry in Texas—balancing

the needs of both the surface and mineral estate—while maintaining

mineral exploration and exploitation essential to Texas’s economy.18

With

the “hydrologic fracturing revolution” the Texas Legislature in 2013 and

2019, has tried to be proactive in maintaining the integrity of the oil and gas

industry in relation to surface and mineral estate owners.19

Changes to the

15. See Gabriel Collins, Frac Ranching vs. Cattle Ranching: Exploring the Economic

Motivations Behind Operator-Surface Owner Conflicts over Produced Water Recycling

Projects, Issue Brief, Baker Inst. for Public Pol’y, Rice University (Oct. 17, 2017)

(comparing how the value of water sold to hydrologic fracturing producers can be more

lucrative than traditional cattle farming).




America, (Sept. 16, 2019), p. 19, https://documentcloud.adobe.com/link/track?uri=urn%3


ZG7C-3PGQ] (“per barrel water acquisitions costs in seven Permian Basin counties with

averages ranging from a low of $.48 per barrel in Howard Country to as high as $1.02 per

barrel in Eddy County”); see also Mark Kaufman, We're fracing the hell out of the U.S.A.

Can a president slam on the brakes?, Yahoo! News (June 26, 2019), https://news.yahoo.com/

were-fracing-hell-u-president-165440714.html [https://perma.cc/3E6T-2J3N] (focusing on

the expansion and future of fracing in Texas and the legislation surrounding its regulation).

17. See generally Marathon Oil led an initiative to remove barriers to using produced

water in New Mexico, https://www.marathonoil.com/Sustainability-Report/Highlights/

Water-Management/ [https://perma.cc/NKG8-KRAL] (last visited Dec. 30, 2019)

(describing the way a major producer and operator will look to the New Mexico Legislature

to change the law in the same way they lobbied the Texas Legislature).

18. See generally Railroad Commission of Texas, Oil & Gas Exploration and Surface

Ownership, https://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-exploration-

and-surface- ownership/ [https://perma.cc/689E-8A7Y] (last updated July 18, 2016)

(providing context to how the agency for regulatory oversight interacts with operators and

surface owners within the context of oil and gas exploration).

19. See Act of May 28, 2013, 83rd Leg., R.S., ch. 201, § 1, 2013 Tex. Gen. Laws 209

(amended 2015 and 2019) (current version at Tex. Nat. Res. Code Chapter 122.002)

(understanding the evolution of fracing technology, the Texas Legislature has amended this

code three times in the past 6 years); see also Yes, No, Maybe So: Uncertainty in Texas

Groundwater Withdrawal for Hydrologic Fracturing, 52 Hous. L. Rev. 1227, 1236 (2015)


http://www.marathonoil.com/Sustainability-Report/Highlights/Water-Management/


http://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-exploration-and-surface-

http://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-exploration-and-surface-

482 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 Natural Resource Code Chapter 122 have tried to keep up with the general

practices of the evolution of fracing technology.20

In 2013, the Texas

Legislature would first address the treatment of post fracing waste.21

However, changing the law to favor the operators at the expense of the

surface owners during fracing operations—in an industry where the

production of value is hundreds of millions of dollars per day—had the

potential to produce unanticipated consequences.22

Water treatment technology is not a stranger in the energy sector; nor is

the practice of recycling industrial waste. Therefore, it is essential to limit

the scope and properly define the terms within this comment. The principles

of law and conclusions throughout this comment are specific to

“groundwater entirely produced by the surface estate (and the lands pooled

therewith) subject to mineral production on a tract therein.”23

This comment

will exclusively focus on what is commonly referred to as a severed estate

subject to no prior contracts or surface use agreements. As used throughout

this comment “surface owner” or “surface estate” means all interests in the

fee simple estate (whether severed or not), except the mineral estate granted

to or reserved by the mineral interest owner (i.e., the fee simple title save

(“The Texas legislature made numerous unsuccessful attempts to address this ambiguity”);

Blythe Lyons, John Tintera, Kylie Wright, Executive Summary: Sustainable Produced

Water Policy, Regulatory Framework, and Management in the Texas Oil and Gas Industry:

2019 and Beyond, (Sept. 16, 2019), https://texasalliance.org/white-paper/

[https://perma.cc/944V-MA4D] (last visited Dec. 30, 2019) (“Texas took an early lead in

recognizing the potential value of recycling and began updating its regulatory framework in

2013”).

20. See Act of May 28, 2013, 83rd Leg., R.S., ch. 201, § 1, 2013 Tex. Gen. Laws 209

(amended 2015 and 2019) (current version at Tex. Nat. Res. Code Chapter 122.002)

(understanding the evolution of fracing technology, the Texas Legislature has amended this

code three times in the past 6 years).

21. See generally Act of May 28, 2013, 83rd Leg., R.S., ch. 201, § 1, 2013 Tex. Gen.

Laws 209 (amended 2015 and 2019) (current version at Tex. Nat. Res. Code Chapter

122.002) (understanding the evolution of fracing technology, the Texas Legislature has

amended this code three times in the past 6 years).

22. See generally Andrew R. Thomas, Fracing Keeps the Gas Pedal on U.S. Economy,

Industry Week (March 26, 2019) (explaining the impact of the United States fracing industry

on the global economy); Permian Basin Petroleum Association, Economic Impact of Oil and

Gas Industry in Texas, https://pbpa.info/industry-statistics [https://perma.cc/GE3S-G4HA]

(last visited Dec. 30, 2019) (“[t]he oil and gas industry paid over $15.7 billion in Texas state

and local taxes and royalties in fiscal 2014 and a total $98.9 billion in Texas state and local

taxes and royalties from 2007 through 2015”).



(State Bar of Texas, Fall 2017) (matching terminology with language used in the practice of

oil and gas law).



the title to the minerals in place); “mineral estate” means those interests

held by the mineral interest owner.24

“Operator” means the companies

exploring and exploiting the minerals through hydrologic fracturing. This

comment does not cover ground water which has been sold by the surface

owner to the operator.

There are many stakeholders in the economy of hydrologic fracturing.25

For example, Regulatory agencies, environmental agencies, state and local

governments, and independent business operators all have a part to play at

any one stage of the fracing process.26

However, even though this comment

does not intend to delve into the interests of the above-mentioned

stakeholders—by focusing on the surface and mineral estates—the

consequences will reverberate amongst these stakeholders. The regulation

of finite minerals will increasingly become more important.

This comment will focus on House Bill 3246 and its impact in the

context of surface and operator conflicts; specifically, the common practice

of operators recycling post-fracing wastewater. Further, this comment will

assert the enforcement of the provisions in House Bill 3246 as outlined in

the Texas Natural Resources Code Chapter 122.002 constitutes a

constitutional regulatory taking of the water, being an attribute of the

surface estate, when operators use recycled water to service acreage other

than the producing tract of land, or acreage pooled within. Part II of the

comment will explain the division of rights existing between the surface

estate owner and the mineral estate owner. Part III will describe the

legislative history of House Bill 3246 and the interest of the Legislature in

revising the Texas Natural Resources Code. Part IV will analyze the effect

of House Bill 3246 on surface owners and conclude that as applied, Texas

Natural Resources Code Chapter 122.002 is a regulatory taking. Part V will

conclude and provide context into this unique area of the law. The real

24. Id.

25. See Institute for Energy Law, 6th Midstream Oil and Gas Law Conference,

Transporting Water for Oil and Gas Development: Problems, Opportunities and Potential

Solutions, (Dec. 2019) (copy on file with author) (discussing the number of parties involved

in dealing with post fracing waste in the context of operators and third parties).

26. See generally Railroad Commission of Texas, Water Use in Association with Oil

and Gas Activities, https://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-

faqs/faq-water-use- in-association-with-oil-and-gas-activities/ [https://perma.cc/Z5UK-

NDEB] (last visited Dec. 18, 2019) (providing context to how the agency for regulatory

oversight interacts with other agencies within the context of oil and gas exploration); Peter

E. Hosey & Jesse S. Lotay, Quench My Thirst: Water Rights in the Context of Water

Treatment Technologies, 42 Oil, Gas & Energy Res. Law Sec. Report 21 (State Bar of

Texas, Fall 2017) (describing the enforcement and regulatory power in the context of water

treatment and usage).


http://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-faqs/faq-water-use-

http://www.rrc.state.tx.us/about-us/resource-center/faqs/oil-gas-faqs/faq-water-use-

484 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 property doctrine of correlative rights creates a usufruct interest in the

groundwater allowing the operator to use the water to exploit the minerals

for benefit of the land or acreage pooled therewith. The statute then

attempts to expand the usufruct right of use into an ownership interest in the

backflow water.

II. Division of Rights

Texas gives a fee simple owner proprietary rights and constitutional

protections to every molecule or atom located underground within the

property boundary.27

The mineral interest owner will have the dominant

interest over the surface estate.28

It is important to establish what rights and

substances are reserved when the minerals are severed. Traditionally, the

hydrocarbons in place are owned by the mineral estate while groundwater is

part of the surface estate.29

Moreover, this severability is always subject to

the terms of the conveying instrument or contract.30

27. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 831–32 (Tex. 2012) (quoting

“[I]n our state the landowner is regarded as having absolute title in severalty to the oil and

gas in place beneath his land. The only qualification of that rule of ownership is that it must

be considered in connection with the law of capture and is subject to police regulations. The

oil and gas beneath the soil are considered a part of the realty. Each owner of land owns

separately, distinctly and exclusively all the oil and gas under his land and is accorded the

usual remedies against trespassers who appropriate the minerals or destroy their market

value.”); see also Elliff v. Texon Drilling Co., 210 S.W.2d 558, 562 (Tex. 1948) (quoting

“[E]ach owner whose land overlies the basin has a like interest, and each must of necessity

exercise his right with some regard to the rights of others”).

28. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 810 (Tex. 1972) (“[T]he oil and gas

lessee’s estate is the dominant estate and the lessee has an implied grant, absent an express

provision for payment of free use of such part and so much of the premises as is reasonably

necessary to effectuate the purposes of the lease, having due regard for the rights of the

owner of the surface estate.”); Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971)

(quoting “[I]t is well settled that the oil and gas estate is the dominant estate in the sense that

use of as much of the premises as is reasonably necessary to produce and remove the

minerals is held to be impliedly authorized by the lease; but that the rights implied in favor

of the mineral estate are to be exercised with due regard for the rights of the owner of the

servient estate.”); Brown v. Lundell, 344 S.W.2d 863, 865 (Tex. 1961) (citing “[W]e agree

that the owner-operator of the lease has the right to use so much of the land, both surface and

subsurface, as is reasonably necessary to comply with the terms of the lease contract and to

carry out the purposes and intentions of the parties.”); TDC Engineering, Inc. v. Dunlap, 686

S.W.2d 346,349 (Tex. Ct. App. 1985) (holding the mineral estate is the "dominant estate").

29. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972) (quoting “[W]ater,

unsevered expressly by conveyance or reservation, has been held to be a part of the surface

estate.”); See also Fleming Found. v. Texaco, Inc., 337 S.W.2d 846, 852 (Tex. Ct. App.

1960) (holding “[t]he reservation of oil, gas and other minerals does not include the sub-

surface water.”); City of Del Rio v. Clayton Sam Colt Hamilton Tr., 269 S.W.3d 613 (Tex.



Texas jurisprudence and regulatory governance dictates a balance

between correlative rights and the rule of capture.31

The delicate dance

created by correlative rights in the use of groundwater have limited the

outright exploitation of hydrocarbons at the expense of the surface estate in

four major ways: the accommodation doctrine32

, the reasonable and non-

negligent use of the surface33

, usufructuary water rights34

, and beneficial

surface use for the mineral estate.35

These well-established doctrines work

together to ensure balance between the rights of the surface owner and

mineral owner, when interests may not always align.36

Because the mineral

estate is dominant, the accommodation doctrine tempers these implied

rights by stating the mineral interest owner must, if reasonably able to do

so, give due regard to the surface owner’s existing current use of the

surface.37

Along these same lines, the mineral owner must use its implied

Ct. App. 2008) (quoting “[U]nder the rule of capture a person owns all of the [water or] oil

and gas produced by a well bottomed on his own land, even though the well may be draining

the substances from beneath other property”).

30. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972) (“[W]ater,

unsevered expressly by conveyance or reservation, has been held to be a part of the surface

estate.”).

31. See 2 Ernest E. Smith and Jacqueline Lang Weaver, Texas Law of Oil and Gas 8.3

(LexisNexis Matthew Bender 2015) (“the Railroad Commission’s duty to protect correlative

rights exists side by side with the common-law rule of capture.”).

32. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808,810 (Tex. 1972) (“The oil and gas

lessee’s estate is the dominant estate and the lessee has an implied grant, absent an express

provision for payment, of free use of such part and so much of the premises as is reasonably

necessary to effectuate the purposes of the lease, having due regard for the rights of the

owner of the surface estate.”) (emphasis added).

33. See Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 810 (Tex. 1972) (Quoting “[T]he oil

and gas lessee’s estate is the dominant estate and the lessee has an implied grant, absent an

express provision for payment, of free use of such part and so much of the premises as is

reasonably necessary to effectuate the purposes of the lease, having due regard for the rights

of the owner of the surface estate.”) (emphasis added).

34. See Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 867 (Tex. 1973)

(explaining the use of the implied right by the dominant estate does not extend to an

ownership interest in the property used); In re Adjudication of Water Rights of Upper

Guadalupe Segment etc., 642 S.W.2d 438, 444 (Tex. 1982) (“[a] usufruct has been defined

as the right to use, enjoy and receive the profits of property that belongs to another”).

35. See 501 S.W.2d 865, 868 (Tex. 1973) (explaining the use of the implied right by the

dominant estate must not be for the benefit outside that of the surface estate boundaries).

36. See 2 Ernest E. Smith and Jacqueline Lang Weaver, Texas Law of Oil and Gas 8.3

(LexisNexis Matthew Bender 2015) (“Because Texas conservation statutes never define

correlative rights, the courts have filled the void.”).

37. See generally Getty Oil Co. v. Jones, 470 S.W.2d 618, 619 (Tex. 1971) (establishing

the mineral interest owner must take into account reasonable alternatives when operating


486 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 right of the surface in a reasonable and non-negligent manner.

38 The last

two limiting doctrines are of the upmost importance for the purposes of this

comment39

A. Use Versus Ownership

Use is not ownership. Correlative rights of the severed mineral interest

owner are expressly usufructuary.40

The Texas Supreme Court utilizes the

present right to use only when conceptualizing the implied surface use right

by the dominant estate.41

In both the Sun Oil and Robinson v. Robbins

Petroleum Corp. opinions, the court takes pains to describe these rights in

terms of “use” and not of ownership.42

In Sun Oil, the court reiterates “the

implied grant of reasonable use extends to and includes the right to use

water from the leased premises in such amount as may be reasonably

necessary to carry out the lessee’s operations under the lease.”43

Robbins Petroleum Corp. would not only further usufructuary nature of

the implied right to use, but would state “the water itself is an incident of

surface ownership in the absence of specific conveyancing language to the

contrary.”44

It is in this concept that the dominant estate is dominant,

under the implied right of use; further, the mineral estate must do so in a non-negligent

manner).

38. Id.

39. See Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53, 64 (Tex. 2016)

(“Common law rules governing mineral and groundwater estates are not merely similar; they

are drawn from each other or from the same source”).



(State Bar of Texas, Fall 2017) (“Since a mineral interest owner’s right to water is

usufructuary—giving it a present right of use only—it cannot sell that which it does not

own.”) (emphasis in original).



(State Bar of Texas, Fall 2017) (“In each instance, the court’s recognition of a mineral

interest owner’s implied right of surface use implicitly recognizes the surface estate owner’s

ownership of the surface. Second, the court’s language confines surface use to effectuating

the purposes of the mineral lease”).

42. See generally Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972) (describing the

rights of the mineral interest owner in terms of use); Robinson v. Robbins Petroleum Corp.,

501 S.W.2d 865, 867 (Tex. 1973) (explaining use of the surface estate and not ownership of

the property used).

43. Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972) (adding the qualification

of reasonable use of the surface estate by the operator).

44. Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 867 (Tex. 1973)

(qualifying the usufruct can be modified by any legal contractual agreement).



without this usufruct, mineral interest owners would have no way to extract

minerals without an agreement with the surface owner.

The reiteration of use over ownership is not inconsequential, it is

essential to how Texas law balances the interests of a severed estate. Also

important, are the ancillary and regulatory interactions between the state

and the oil and gas industry. This comment seeks to provide background

into how the oil and gas industry has been regulated previously to provide

context to the impact of House Bill 3246. To understand how operators

must interact with statutory and regulatory obligations, every stage of the

fracing process must be understood in terms of the legislative purview.

B. The Legal Relation of Water to Its Practical Use

There is no question that groundwater is an attribute of the surface

estate.45

The mineral estate is the dominant estate.46

Because of the

dominant estate status, Texas allows capture of those minerals through

reasonable use of the surface estate. Operators looking to exploit minerals

may in a practical sense, use the surface to effectuate their exploitation.47

The means by which operators effectuate the use of the surface estate

during the process of hydrologic fracturing is a multi-tiered approach—

every tier requires fresh groundwater.48

45. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 831-32 (Tex. 2012) (holding

“In our state the landowner is regarded as having absolute title in severalty to the oil and gas

in place beneath his land. The only qualification of that rule of ownership is that it must be

considered in connection with the law of capture and is subject to police regulations. The oil

and gas beneath the soil are considered a part of the realty. Each owner of land owns



value.”).

46. Sun Oil Co. v. Whitaker, 483 S.W.2d 810 (Tex. 1972) (“The oil and gas lessee’s

estate is the dominant estate and the lessee has an implied grant, absent an express provision

for payment, of free use of such part and so much of the premises as is reasonably necessary

to effectuate the purposes of the lease, having due regard for the rights of the owner of the

surface estate.”) (internal citation omitted) (emphasis added).

47. See TDC Engineering, Inc. v. Dunlap, 686 S.W.2d 346, 349 (Tex. App.—Eastland

1985) (“A grant of minerals would be worthless to a grantee if he could not enter upon the

land for exploration and extraction of the minerals granted.” (quoting Ball v. Dillard, 602

S.W.2d 521, 523 (Tex. 1980))).

48. Frac Focus Chemical Disclosure Registry, Hydrologic Fracturing: The Process,

https://fracfocus.org/hydrologic-fracturing-how-it-works/hydrologic-fracturing-process

[https://perma.cc/DW5V-QUDX] (last visited Dec. 18, 2019) (describing the four-stage

process requiring freshwater).


488 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6

1. From Groundwater to Well-Head

Once operators begin the process of drilling and fracing, one of the first

steps is to acquire significant amounts of fresh water, usually by way of

freshwater wells drilled on the surface estate.49

The water extracted by the

operator is then pumped to storage tanks or large ponds closer to the well

head.50

These fresh water storage ponds are usually filled days prior to the

beginning of injecting the water into the well.51

The operator is very

cautious not to lose or contaminate any freshwater during this early stage by

ensuring proper transportation of the freshwater through pipes or by trucks

and properly casing the wellbore.52

Throughout this process, involving

significant and expensive infrastructure, the legal ownership of the water

has not changed.53

Legal ownership has not changed under common law,

Texas jurisprudence, or even acting within the changes outlined in Natural

Resources Code Chapter 122.002. This means, where the surface owner has

not sold the water to the operator, the surface estate still owns all the water

in the storage tanks, the storage ponds, inside transportation pipes and

trucks, and at the wellbore. Once again, operators have only a usufruct

when it comes to land use of the surface estate, including groundwater.54

At no point in the stages prior to pumping the freshwater down the

fraced well, does Texas jurisprudence qualify or describe freshwater in any

49. Id. (describing the location and storage of fresh groundwater during the process of

fracing).

50. See Frac Focus Chemical Disclosure Registry, Hydrologic Fracturing: The Process,


[https://perma.cc/DW5V-QUDX] (last visited Dec. 18, 2019) (describing the location and

storage of fresh groundwater during the process of fracing).

51. Id.

52. Id.

53. See Tex. Nat. Res. Code Ann. Chapter 122.002 (providing no condition of the

freshwater ownership status prior to exiting the well as “wastewater”; without any express

change within the law, it is valid to consider groundwater to be owned by the surface); See

also Blythe Lyons, John Tintera, Kylie Wright, Sustainable Produced Water Policy,





ZG7C-3PGQ] (describing the economic benefit of investing large amounts of infrastructure

during oil and gas operations).

54. See Sun Oil Co. v. Whitaker, 483 S.W.2d 810 (Tex. 1972) (“The oil and gas lessee’s

estate is the dominant estate and the lessee has an implied grant, absent an express provision

for payment, of free use of such part and so much of the premises as is reasonably necessary

to effectuate the purposes of the lease, having due regard for the rights of the owner of the

surface estate.”) (emphasis added).



other sense than being a fee simple proprietary ownership right of the

surface. Texas common law doctrine of ensuring the mineral estate is

dominant has evolved with technology, but fundamentally, still provides

both estates benefit from this doctrine.55

Surface owners who purchase after

the land has been severed, have undoubtedly done so at a discount.

Likewise, mineral interest owners who negotiated the purchase price of

their interest have done so with the hope that their interest will be

productive.56

Therefore, Texas common law understands surface owners

most likely have already benefited from their interest prior to the

exploitation of the mineral estate.57

Because of this concept, the scale of this

usufructuary right is not a factor in changing the delicate balance of

ownership between the estates.

Further, with the Edwards Aquifer opinion, Texas jurisprudence put an

end to any question pertaining to the ownership of groundwater.58

Coupled

with Texas’s common law, this decision solidified groundwater as a part of

the realty, for this comment, that is to say, groundwater will be considered

part of the surface; “We now hold that this correctly states the common law

regarding the ownership of groundwater in place.”59

Therefore, during this

stage, absent any contractual agreement, legal ownership of groundwater is

still a vested property right of the surface estate.

55. Tarrant County Water Control & Improvement Dist. Number One v. Haupt, Inc.: “It

is a well-established doctrine from the earliest days of the common law that the right to the

minerals carries with it the right to enter and extract them, and all other such incidents

thereto as are necessary to be used for getting and enjoying them. This common law right

was created “because a grant or reservation of minerals would be wholly worthless if the

grantee or reserver could not enter upon the land in order to explore for and extract the

minerals.” 854 S.W.2d 909, 911 (Tex. 1993) (internal citations omitted) (quoting Harris v.

Currie, 176 S.W.2d 302, 305 (Tex. 1944)).

56. Standard Oil and Gas Surface Use Agreements often include costs of affecting

hunting and fishing activities; these agreements take into account many factors of the surface

owner’s use of his own land.

57. See TDC Engineering, Inc. v. Dunlap, 686 S.W.2d 346, 349 (Tex. App.—Eastland

1985) (“A grant of minerals would be worthless to a grantee if he could not enter upon the

land for exploration and extraction of the minerals granted.” (quoting Ball v. Dillard, 602

S.W.2d 521, 523 (Tex. 1980)).

58. Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 832 (Tex. 2012) (“By ownership

of groundwater as real property, the Legislature appears to mean ownership in place”).

59. Id.



2. From Well-Head to Mineral Formation and Back

With millions of gallons of freshwater prepped and in frac ponds prior to

fracing, the legal ownership has not changed.60

During this process, four

distinct stages require large amounts of freshwater to effectuate the fracing

operation.61

These stages utilize the extracted groundwater for the purpose

of effectuating hydrocarbon extraction. As the freshwater and chemical

mixture is pumped thousands of feet into the formation below, legal

ownership between the surface owner and the operator regarding the

groundwater has not changed.62

During the acid stage, several thousand gallons of fresh water are used to

dissolve material in the well bore.63

This is not always required for every

formation; the necessity of this stage depends on the calcium concentration

within the rock formation. The pad stage demands approximately 100,000

gallons of freshwater be forced down the well bore to prime the pump and

to allow the bore to reach pressure.64

The prop stage allows the operator to

add either fine or course material to make the capture of the minerals more

efficient. This stage can use up to one hundred thousand gallons of

freshwater.65

After the capture of minerals, freshwater is again used in the

flushing stage to flush out additional material from the well prior to closing

it.66

No matter how many chemicals are introduced during these stages,

98% to 99.5% of the material pumped into the well is water and sand.67

It is important to distinguish common practices among operators at this

stage of the operation. After the formation is fractured and the operator

begins pumping out fluid from the well, the concurrent process of



[https://perma.cc/DW5V-QUDX] (last visited Dec. 18, 2019) (describing the volume and

storage of fresh groundwater during the process of fracing).

61. Id.



[https://perma.cc/DW5V-QUDX] (last visited Dec. 18, 2019) (describing the location and

storage of fresh groundwater during the process of fracing); See also See Tex. Nat. Res.

Code § 122.002 (providing no condition of the freshwater status prior to exiting the well as

“wastewater”).

63. Id. (describing the first stage of fresh groundwater use during the process of

fracing).

64. See Id. (describing the second stage of fresh groundwater during the process of

fracing).

65. See Id. (describing the third stage of fresh groundwater during the process of

fracing).

66. See Id. (describing the last stage of fresh groundwater during the process of fracing).

67. Id.



separating minerals, water, and chemicals can begin.68

Once separated, the

minerals go to the producer, the chemicals are either reused or disposed of,

and the water is transported away by truck or pipe to salt water disposal

wells.69

Traditionally, the operator paid for a waste disposal service to truck

away the water, sand, and chemicals to an offsite deep injection well.70

Alternatively, the operator could provide its own waste disposal service

or entirely contract out waste disposal services.71

Even though the water

was being trucked to a disposal site located off the land of the surface

owner, surface owners were happy to permit operators to dispose of the

unusable water because the operator was statutorily obligated to properly

dispose of post-fracing waste.72

However, this “implied permission” did not

transfer any property rights.

Texas has distinguished the chemical composition of groundwater owned

by the surface estate from other similar liquid materials found underground.

In Robinson v. Robbins Petroleum Corp., the operator took saltwater from

the surface estate to re-pressurize the mineral formation for the oil-bearing

rock to remain stable.73

Relying on the word “water” in the lease, the

operator argued it was only liable to reimburse the surface owner for the

freshwater used.74

“Water,” to the operator, meant only freshwater. The

Texas Supreme Court disagreed, “[W]ater is never absolutely pure unless it

is treated in a laboratory. It is the water with which these parties are

concerned and not the dissolved salt. . . . [T]he saline content has no

consequence upon ownership.”75

The next year the Texas Supreme Court lent further insight into

identifying groundwater in Humble Oil & Refining Co. v. West.76

In Humble

Oil, a dispute arose between an operator and royalty interest owner

pertaining to the comingling of native gas and produced gas.77

The court

held, “the confusion of goods theory attaches only when the commingled

68. Id.

69. Id.

70. Id.

71. See Institute for Energy Law, 6th Midstream Oil and Gas Law Conference,

Transporting Water for Oil and Gas Development: Problems, Opportunities and Potential

Solutions, (Dec. 2019) (copy on file with author) (discussing the number of parties involved

in dealing with post fracing waste in the context of operators and third parties).

72. See tit. 16, pt. 1, ch. 3 Tex. Admin. Code, § 3.9 (2020) (providing regulations on the

use and treatment of “wastewater.”).

73. Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 866 (Tex. 1973).

74. Id. at 867.

75. Id.

76. Humble Oil & Ref. Co. v. West, 508 S.W.2d 812, 818 (Tex. 1974).

77. Id.


492 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 goods of different parties are so confused that the property of each cannot

be distinguished.”78

Therefore, if the surface-owned freshwater is going into the well as a

usufruct by the operator, it is an asset of the surface estate. When it is

mixed with chemicals, pumped down into the formation, and returned as

produced liquid, it becomes part of the production stream. However, when

operators recycle the produced liquid, the recycled water is separated from

the hydrocarbons. As in Humble Oil and Robinson, ascertaining what is

groundwater is a question of fact.

With the rise of water treatment technologies came the rise in operators

looking to take advantage of this common practice.79

Instead of disposing of

the backflow water, operators set up treatment technologies to bring the

backflow water to a state clean enough to be reused. Once recycled, the

operators either sold the water for industrial use, reused it in the same well,

or stored it for future use (on either the same tract or a nearby tract). Thus,

operators created a market through ingenuity.80

Depending on the

formation, operators recover up to 40% of the frac water when it flows back

through the wellbore.81

All questions concerning the use of groundwater are resolved when the

surface owner sells groundwater to the operator; because the cost of

groundwater sold by the surface owner to operators ranges from ten to

seventy-five cents—depending on demand and location—the cost of frac

water is a significant expense to the operator. Where the operator relies on

the doctrine of correlative rights, the use of the flowback water is limited to

use on the land covered by the lease, or acreage pooled therein.82

Throughout the entire fracing process, the operator must dance the

delicate usufruct dance. Once the purchased backflow water is recycled, it

can be used for another tract of land or sold. Recognizing this proprietary

78. Id.



(State Bar of Texas, Fall 2017) (describing the effect market operators have created by

recycling fracing water).

80. See Id.. (describing the market operators have created by recycling fracing water).






82. See Robinson, 501 S.W.2d at867 (explaining the use of the implied right by the

dominant estate does not extend to an ownership interest in the property used).



issue, operators and producers sought help from the Texas Legislature to

codify their new practice.83

3. Voluntary Agreements or Legislative Intervention

Some operators and producers have invested billions of dollars into

water treatment technologies since 2013.84

To protect their investment,

operators rely heavily on their relationships with landowners and future

legislative certainty.85

In Texas, some operators have preemptively entered into surface use

agreements with landowners that contain groundwater sales provisions.86

Unlike New Mexico, Texas does not have a surface use statute. These

surface use agreements are not required by the Texas Legislature or the

Railroad Commission, but merely codify the duties and obligations of each

party prior to and during operations. Contained within these agreements are

reimbursement rates not limited to wildlife killed by operations, land

damage, and the cost of groundwater used during all stages of the fracing

process.87

Even where the operator has no legal obligation to the surface

owner other than the common law doctrines described above, some

operators and producers contract with surface owners to express their

respective duties and obligations.

Given the massive investment in infrastructure required to exploit

minerals for each tract—and given the desire to take full advantage of this

83. See William C. Mumby, Trust in Local Government: How States’ Legal Obligations

to Protect Water Resources Can Support Local Efforts to Restrict Fracing, 44 Ecology L.Q.

195, 202 (2017) (“[S]tates act as the primary regulators of the practice.”). See also House

Comm. on Energy Resources, List of Witnesses, Tex. H.B. 3246, 86th Leg., R.S. (2019)

(describing the private parties testifying for and against House Bill 3246).

84. See generally Austin C. Whitmore, Oilfield Recycling in Texas: Why Command

and Control Regulations are Stifling the End Goal, 44 Tex. Envtl. L.J. 287, 292 (Sept. 2014)

(“A 2011 study by the Texas Water Development Board estimated that only 3% of injected

frac water is recycled in Texas.”); N.M. Stat. Ann. § 70-12-5 (West) (outlining the

requirements of surface use agreements prior to the commencement of oil and gas

operations).

85. Marathon Oil led an initiative to remove barriers to using produced water in new

Mexico, https://www.marathonoil.com/Sustainability-Report/Highlights/Water-Manage

ment/ [https://perma.cc/NKG8-KRAL] (last visited Dec. 30, 2019) (describing the way a

major producer and operator will look to the New Mexico Legislature to change the law in

the same way they lobbied the Texas Legislature).

86. See generally Institute for Energy Law, 6th Midstream Oil and Gas Law

Conference, Transporting Water for Oil and Gas Development: Problems, Opportunities

and Potential Solutions, (Dec. 2019) (copy on file with author) (discussing the contractual

relationships between parties at all stages of the fracing operational process).

87. Id.




494 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 investment through backflow water recycling, it is sensible to stave off

conflicts by negotiating with the surface owner through a “groundwater

sales agreement” or “surface use agreement” prior to the commencement of

operations. As the water used in fracing becomes more valuable than cattle

ranching or agriculture, operators have anticipated conflicts with surface

owners—surface owners understand the importance of groundwater. Every

drop is important.88

For example, land owners have negotiated to calculate

of the volume payable by the quantity of the water measured at the well

head rather than the backside of the frac pond.89

This simple detail can save the landowner thousands of dollars in lost

water sales. After being pumped from the ground, the water can sit in open

frac ponds for days or weeks before arriving at the fracing well site. If the

calculation occurs at the water well, evaporation is of no concern, but if the

operator calculates water use at the fracing site, operators are not paying for

any evaporated water.90

Because fracing operations require substantial use

of the surface estate, these practical details are of the utmost importance to

landowners.

Modern surface use agreements have anticipated conflict to the point that

operators have begun to buy the groundwater from the surface owner prior

to use—even when the operator has no obligation to do so.91

Operators

understand the legal “grey area” of ownership when water is recycled and

have solved this issue with purchase agreements within surface use

contracts.92

However, given the expense of groundwater, operators have

solved one problem to buy another.

88. Id.

89. Id.





Aaaid%3Ascds%3AUS%3A2c7b5154- f581-47dc-9c19-314d82c8de05 [https://perma.cc/

ZG7C-3PGQ] (“Hauling water away from well pads via truck can cost anywhere from $1 to

$5 per barrel depending on travel distance and terrain, which can be prohibitively expensive

when compared to the $.30 it reportedly costs to pipe water from a production well to a

disposal well.”).










The reason for recycling post-fracing water or backflow water is to lower

the operator’s costs. If operators are going to buy the water and recycle,

they have effectively lowered their margins only to the extent of the virgin

water saved. However, if operators do not purchase groundwater and must

therefore rely on the correlative rights doctrine limited in how and where

the backflow water may be used, “Costs expended on such technologies

would create no cost or economic benefits for the mineral interest owner,

and the implementation of water treatment technologies would yield to less

costly disposal well alternatives.”93

Thus, operators and producers began to

look for legislative ways to protect their recycling investments without the

need for legally preemptive surface use agreements.

III. Legislative History and Importance

A. Regulatory History of Oil and Gas in Texas

With the Texas Railroad Commission (“RRC”) and Texas Commission

on Environmental Quality (“TCEQ”) gently stepping around the regulatory

use of water for oil and gas operations, it is easy to become lost in the

practical process of how operators use water. The scope of water use for

operators must always be described, absent written agreement and for the

reasons stated above, in terms of usage.94

Therefore, groundwater always

begins as an asset of the surface estate, or the estate where the severance

has occurred, but is not granted to the lessee under the terms of a typical oil

and gas lease.95

Its use is dictated according to the common law doctrine of

correlative rights. The historical evolution of mineral law in Texas has

nourished the oil and gas industry in many ways.96





(State Bar of Texas, Fall 2017) (describing the market that operators have created by

recycling fracing water).

94. Brown v. Lundell, 344 S.W.2d 863, 865 (Tex. 1961) (“We agree that the owner-

operator of the lease has the right to use so much of the land, both surface and subsurface, as

is reasonably necessary to comply with the terms of the lease contract and to carry out the

purposes and intentions of the parties.”) (internal citation omitted).

95. Sun Oil Co. v. Whitaker, 483 S.W.2d at 810 (“The oil and gas lessee’s estate is the

dominant estate and the lessee has an implied grant, absent an express provision for

payment, of free use of such part and so much of the premises as is reasonably necessary to

effectuate the purposes of the lease, having due regard for the rights of the owner of the

surface estate.”) (internal citation omitted).

96. See generally John Burritt McArthur, Stewarding Public Oil, Gas, and Hard

Minerals: The Express and Implied Development Rights that Protect Public Resources, 9



Recognizing the importance of being an energy leader throughout the

world, Texas legislative acts have gone to great lengths to perfect property

rights in relation to the theory of mineral ownership in place.97

The goal of

oil and gas legislative regulation has been the ability of lawmakers and

regulators to balance the exploration and exploitation of natural resources

with the absolute right of property ownership.98

Even though the methods of

exploration and production have been revolutionized through technology,

the legislature has sought to reinforce the moniker of the independent

producer, “rise early, work hard, strike oil.”99

The primary way the Texas Legislature ensured the perpetuity of the

hydrocarbon energy sector was how it structured the oversight of the energy

industry.100

Texas established the Railroad Commission in 1890, but it

wasn’t until 1917 that the legislature declared pipelines to be “common

carriers” that the RRC was able to regulate the energy industry.101

From

1917 to 1939, the legislature would enact new statutes or amend the Natural

Resource Code a total of thirty-six times.102

These acts would serve to clarify the scope and authority of the RRC in

comparison with the ever-growing oil and gas producers; these acts would

Tex. J. Oil Gas & Energy L. 215, 250 (July 2014) (treats leases obligating lessees to produce

by the end of the primary term as requiring actual production in paying quantities); see also

2 Texas Law of Oil and Gas 8.4 (2019) (“Texas governors, legislators, attorneys general, and

Railroad Commissioners are concerned not just with preventing waste in the oil and gas

fields but with the state’s economy as a whole—with employment levels, tax revenues,

investment opportunities, and the maintenance of competition. When the size of the state’s

oil and gas wealth became apparent, its distribution among citizens also became a political

matter.”).

97. See Ernest E. Smith and Jacqueline Lang Weaver, 2 Texas Law of Oil and Gas 8.3

(LexisNexis Matthew Bender 2015) (Not surprisingly, the Texas Legislature enacted various

tax incentives to offset the deteriorating market conditions faced by the oil industry.”); see

generally 2 Texas Law of Oil and Gas 8.4 (2019) (outlining the evolution of Texas’ statutory

scheme incentivizing exploration and production of oil and gas).

98. See generally 2 Texas Law of Oil and Gas 8.4 (2019) (outlining the evolution of

Texas’ statutory scheme incentivizing exploration and production of oil and gas).

99. J. Paul Getty Quotes, BrainyQuote.com, 2019. https://www.brainyquote.com/

quotes/j_paul_getty_100065 [https://perma.cc/JS7P-FMFS] (last visited Dec. 18, 2019).

100. Lone Star Gas Co. v. State, 153 S.W.2d 681, 687 (Tex. 1941) (describing the

interaction between the regulatory institutions that affect the oil and gas industry).

101. See History of the Railroad Commission 1866-1939, https://www.rrc.state.tx.us/

about-us/history/history-1866-1939 [https://perma.cc/JQ8N-XB5C] (last visited Dec. 30,

2019) (“Legislature declares pipelines to be common carriers, and gives Railroad

Commission jurisdiction over same. This is the first act to designate the Railroad

Commission as the agency to administer the conservation laws relating to oil and gas.”).

102. Id. (describing the major events in history for the Texas Railroad Commission).


http://www.brainyquote.com/quotes/j_paul_getty_100065

http://www.brainyquote.com/quotes/j_paul_getty_100065

http://www.rrc.state.tx.us/about-



include the authority to issue statewide proration orders103

, physical waste

standards104

, market manipulation limitations105

, and the well spacing

rule.106

In 1941, with the Lone Star Gas Co. v. State decision, the RRC rate

consideration orders were to be considered “legislative” in nature107

.

Therefore, the RRC would be able to expand its regulatory authority and

scope without a specific enactment by the legislature. This is evidenced by

the decreasing number of changes to the Natural Resource Code in the

years following this decision. From 1940-1980, the legislature amended or

expanded the Natural Resources Code only another twenty-two times.108

From 1980-2009, only four legislative changes occurred regarding the

Natural Resources Code.109

To understand the relationship of the RRC and the legislature is to

understand energy politics in Texas—incentives to explore and produce oil

and gas in Texas go hand in hand with explicit and implicit rights of both

the mineral and surface estates. The current three RRC commissioners have

a combined total of 70 years’ experience in the energy, business, and

engineering sectors.110

They have worked both in the public and private

business sectors; and some have had experience in the financial sector.111

Even though these commissioners are popularly elected or appointed by the

Governor during a vacancy in a largely conservative state, they are clearly

dedicated to their mission “to serve Texas by our stewardship of natural

resources and the environment, our concern for personal and community

103. Id.

104. Id.

105. Id.

106. Id.

107. Id.

108. See History of the Railroad Commission 1980-1999, https://www.rrc.state.tx.us/

about-us/history/history-1980-1999/ [https://perma.cc/GR4E-4FLV] (last visited Dec. 30,

2019) (describing the major events in history for the Texas Railroad Commission).

109. See History of the Railroad Commission, https://www.rrc.state.tx.us/about-

us/history/history-2000-2009/ [https://perma.cc/2ZN3-D6LP] (last visited Dec. 30, 2019)

(describing the major events in history for the Texas Railroad Commission).

110. See 2 Texas Law of Oil and Gas 8.4 (2019) (“However, the authority to regulate the

oil and gas fields in Texas naturally carries with it the power to manage the Texas economy.

Railroad Commissioners are elected officials who operate in the same environment as the

lawmakers who create the policy framework. Not surprisingly, then, they have viewed their

role as managers of the Texas economy and have acted accordingly.”).

111. See Commissioners, https://www.rrc.state.tx.us/about-us/commissioners/ [https://

perma.cc/W87N-FFBE] (last visited Dec. 30, 2019) (providing the background of the current

commissioners for the Texas Railroad Commission).




http://www.rrc.state.tx.us/about-us/history/history-

http://www.rrc.state.tx.us/about-us/history/history-

http://www.rrc.state.tx.us/about-us/commissioners/

498 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 safety, and our support of enhanced development and economic vitality for

the benefit of Texans.”112

The scope of the RRC’s regulatory power over the oil and gas is broad

and has expanded over time. First and foremost, correlative rights have

mainly been protected by the courts and statutory guidance because the

RRC has had a tough time walking the proprietary interest tightrope:

The Natural Resources Code evidences near-schizophrenia

regarding the commission’s power and duty to protect

correlative rights. Chapter 85 of the code, which involves oil

conservation, never uses the phrase “correlative rights.” Chapter

86 on gas conservation is replete with references to the need to

protect correlative rights. Chapter 111 on common carriers and

common purchasers is based on the principle that all producers

should have equal access, without discrimination, to pipelines, a

principle imbued with the concept of protecting correlative

rights. Chapter 102, the Mineral Interest Pooling Act, openly

acknowledges the protection of correlative rights as one of its

purposes. Yet nowhere in the code is “correlative rights” ever

defined.113

“The directive of the RRC is not to define what interests parties currently

have, but to simply regulate and “protect the correlative rights of different

interest owners.”114

When there is a gap or need for interpretation, the

courts have filled the gap.

Just as confusing is how the RRC and the Texas Commission on

Environmental Quality share the responsibility of regulating water for the

purpose of oil and gas exploration and exploitation. However, no matter

how confusing the relationship of regulation and legislative acts have

become, the theme has been steady— legislative acts evolve with the

regulatory nature of the oil and gas sector—and have generally not altered

112. Texas Railroad Commission Mission Statement, https://www.rrc.state.tx.us/about-

us/organization-activities/mission-statement/ [https://perma.cc/N8JF-22Y7] (last visited Dec.

30, 2019).

113. Ernest E. Smith and Jacqueline Lang Weaver, 2 Texas Law of Oil and Gas 8.3

(LexisNexis Matthew Bender 2015).

114. See Texas Railroad Commission, Oil and Gas Division, https://www.rrc.state.tx.us/

about-us/organization-activities/divisions-of-the-rrc/oil-gas-division/ [https://perma.cc/

KDF2-NLCA] (last visited Dec. 30, 2019) (explaining how the Railroad Commission

delegates its duties and responsibilities within the regulation of the oil and gas industry in

Texas).







long established common law property rights.115

The relationship of the

RRC and the Texas Legislature is not the aim of this comment; this

background is meant to provide context into why legislative intervention in

the oil and gas industry reverberates so profoundly.

B. Legislative History and Intent of House Bill 3246

Eight words contained in House Bill 3246 have changed the relationship

between surface owners and operators by codifying a practice which alters

property ownership in favor of one party, and transfers the same property to

another party, without means of compensation.116

By breaking down the

way the legislature went about codifying this practice, the creation of my

first sentence in this paragraph is not an oversimplification.

The intent of the legislature was to codify the way operators dealt with

the “waste of oil and gas fluid.”117

By reframing the issue of groundwater

ownership in dealing with the post fracing fluid waste, the legislature seeks

to avoid expressly regranting proprietary rights.

Texas Representative Drew Darby introduced House Bill 3246 to clear

up the perceived “ambiguity relating to ownership between water haulers

and oil and gas operators.”118

Although this reasoning is factually true and

seeks to clarify the current practices of the operators, the intended

ambiguity to be resolved is not between haulers and operators—the legal

ambiguity of ownership is between the operators and surface owners.






ZG7C-3PGQ] (“[Produced water] ownership is a private property issue, however its

management as a waste is the operator’s responsibility under the existing regulatory

framework.”).

116. See generally House Comm. on Energy Resources, Bill Analysis, H.B. 3246, 86th

Leg., Reg. Sess. (Tex. 2019) (describing the background on the issue of post fracing waste

fluid and why the change was necessary); H.B. 2767, 83rd Leg., Reg. Sess., Ch. 209, § 1

(Tex. 2013) (amended 2015 and 2019) (2013 Tex. Sess. Law Serv. Ch. 209 (West), current

version at Tex. Nat. Res. Code Ann. § 122.002 (West 2019)) (describing the changes to the

Natural Resources Code).

117. See generally House Comm. on Energy Resources, Bill Analysis, H.B. 3246, 86th

Leg., Reg. Sess. (Tex. 2019) (describing the background on the issue of post fracing waste

fluid and why the change was necessary).

118. Id.



1. Waste or Water?

Crucial to all rights held in the law is how we define terms. In construing

a statute, “[o]ur primary objective is to give effect to the Legislature’s

intent, which we ascertain from the plain meaning of the words used in the

statute, if possible.” Southwest Royalties, Inc., 500 S.W.3d at 404. Stated

differently, “[i]f a statute is worded clearly, we must honor its plain

language, unless that interpretation would lead to absurd results.” Combs v.

Health Care Servs. Corp., 401 S.W.3d 623, 629 (Tex. 2013). “Undefined

terms in a statute are typically given their ordinary meaning, but if a

different or more precise definition is apparent from the term’s use in the

context of the statute, we apply that meaning.” TGS-NOPEC Geophysical

Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011). “We further consider

statutes as a whole rather than their isolated provisions.”119

The Natural Resource Code Chapter 122.001 defines several terms used

throughout the statute. In the bill analysis, the author of the bill takes steps

to ensure that changes outlined in House Bill 3246 are uniform with other

definitions running throughout the Natural Resource Code.

The author of the bill seeks to ensure “waste” is properly defined.

“Waste” in terms of the Natural Resources Code is “fluid oil and gas waste

as waste containing salt or other mineralized substances, brine, hydrologic

fracturing fluid, flowback water, produced water or other fluid that arises

out of or is incidental to the production of oil and gas.”120

With the

definition of “waste” including “flowback water, produced water, or other

fluid,” the Natural Resource Code is using one definition to describe

multiple substances subject to differing ownership.121

Practically, “waste” comes out of the fraced well altogether prior to the

operator separating hydrocarbons from the rest of the production stream.122

Therefore, even when the freshwater is mixed with the fracing fluid during

the preparation stage, ownership of each ingredient of the fluid can be

ascertained.123

For example, the freshwater, which was previously

119. Corning v. Hegar, 534 S.W.3d 28, 30 (Tex. App.—San Antonio 2017).

120. See House Comm. on Energy Resources, Bill Analysis, Tex. H.B. 3246, 86th Leg.,

R.S. (2019) (discussing how waste is defined in the context of oil and gas operations).

121. See generally House Comm. on Energy Resources, Bill Analysis, Tex. H.B. 3246,

86th Leg., R.S. (2019) (describing the background on the issue of post fracing waste fluid

and the why the change was necessary).

122. See Adrian C Hedden, Chevron Recycles, Reuses Fracing Water From Oil and Gas

as Permian Production Booms, (Nov. 2, 2019) https://www.currentargus.com/

story/news/local/2019/11/03/chevron-recycles-reuses-fracing-water-oil-gas/4121964002/

[https://perma.cc/5XTF-LJEK] (coming from a large producer and operator on how they

classify material coming out of the fracing well).

123. Id.


http://www.currentargus.com/story/news/local/2019/11/03/chevron-recycles-reuses-fracking-



groundwater and belonged to the surface owner where not purchased by the

operator and prior to it becoming frac fluid, is not “waste” but is part of the

usufruct of the operator; with the surface owner having the ownership

interest. However, when “every liquid incidental to the production of oil

and gas” is defined as “waste” after returning from the formation, any

application of this definition to describe ownership rights could potentially

conflict with multiple parties’ proprietary interests—the consequence of

this House Bill.124

As previously stated, surface owners are perfectly happy with the

operators dealing with all “waste” associated with fracing according to

statutory requirements; so that, “management of oil and gas waste has been

a cost absorbed by operators.”125

However, once the operators recycle the

water it is no longer “waste”, and they should not have acquired title to the

water.

2. Protecting the Investment

With fresh groundwater increasing in value and land owners becoming

more informed about the implementation of water treatment technologies,

operators and producers sought the assistance of the Texas Legislature to

codify the ownership status of post-fracing recycled wastewater.126

Operators knew they were legally protected in extracting the groundwater

for use in their exploitation of the minerals, but in order to safeguard their

practices after exploitation occurs, establishing the right to production

stream and subsequent disposal was essential.127

Supporters for the proposed change in the Natural Resource Code

avoided the impact this change in ownership could produce.

Acknowledging the cost of waste management operators absorb as a result


R.S. (2019) (describing how the Texas Legislature defines waste).




126. See Managing Water Use in Hydrologic Fracturing, https://www.chevron.com/

corporate-responsibility/environment/water [https://perma.cc/KP6A-39P6] (last visited Dec.

30, 2019) (outlining how a major operator and producer manages water during fracing

operations).






ZG7C-3PGQ] (“[i]n some cases, midstream customers have voluntarily paid a recycle

royalty just to “keep the peace” which makes recycling less competitive”).


http://www.chevron.com/corporate-

http://www.chevron.com/corporate-

502 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 of fracing, legislators in support offered to allow operators to own the waste

they were already disposing of via deep salt water injection wells.128

Supporters would further offer this change as an incentive to operators to

recycle and reduce the need for additional exploitation of fresh

groundwater.129

The solution legislators offer to land owners is “to account

for this in future agreements.”130

This reasoning implicitly ignores the

practicality recycling has created within the system of proprietary rights

Texas has perpetuated.

Operators have no legal obligation or duty to contractually account for

“waste” with land owners in a severed estate.131

As described above,

“preemptive” surface use agreements were utilized by operators to stave off

legal challenges when it came to the “grey area” of post recycled

water/waste. However, with the codifying of ownership of this material,

operators have no incentive to ensure the land owner interest in the of post-

fracing fluid (including previously injected groundwater). Practically, the

operator could only rely on correlative rights doctrine for its use of the land

owner’s groundwater from the commencement of operations until the

“water” returns to the surface of the fracing well—from now on, operators

can rely on Natural Resource Code Chapter 122.001 to legally protect them

after their implied usufruct has expired.132

Therefore, with this change in

ownership, the benefit to operators is significant.133




129. Id.

130. Id.

131. See Tex. Nat. Res. Code Chapter 122.002 (providing no condition of the freshwater

status prior to exiting the well as “wastewater.”).

132. See Tex. Nat. Res. Code Chapter 122.001 (providing no condition of the freshwater

status prior to exiting the well as “wastewater.”).






ZG7C-3PGQ] (“[h]auling water away from well pads via truck can cost anywhere from $1

to 5 per barrel depending on travel distance and terrain, which can be prohibitively

expensive when compared to the $.30 it reportedly costs to pipe water from a production

well to a disposal well”).



With value of water increasing, whether fresh or recycled, opponents for

the bill understood the true consequence of the bill.134

In other words, the

parties whose interests were not addressed in House Bill 3246 were the

parties whose legal rights were affected by House Bill 3246.

3. What is “Beneficial Use?”

Water is now a strategic planning factor for fracing operations and major

producers.135

One of the main goals of the bill was to incentivize operators

to recycle post fracing water by clarifying ownership after extracting the

minerals.136

By incentivizing recycling, the state would be said to have a

stronger reason to alter certain property rights. The House Bill sought to

incentivize recycling post-fracing water by stating the operator could own

the post-fracing water (“waste”) only if it takes the water for “the purpose

of treating the waste for a subsequent beneficial use.”137

One of the issues in

understanding the overall aim of this House Bill is the legislature did not

define “treatment”—and more importantly, “beneficial use.”138

Prior to water treatment technologies, many operators would contract out

the waste disposal services after extracting the minerals.139

These waste

removal services would transport all waste material to a treatment site well





as Permian Production Booms, (Nov. 2, 2019) https://www.currentargus.com/

story/news/local/2019/11/03/chevron-recycles-reuses-fracing- water-oil-gas/4121964002/

[https://perma.cc/5XTF-LJEK]; see also Diamondback Energy Corporate Report, 2019, p.

10, https://www.diamondbackenergy.com/static-files/5ab827ab-4b26-47ee-9e16-4d1b27

3d37a3 [https://perma.cc/MDZ3-RNRK] (including recycling statistics in corporate report,

one of the major operators in the Permian Basin stated “[o]ur use of recycled water for

completions increased to 10.7% of total water used in completions in 2018, compared with

less than 1% in 2017”).


R.S. (2019) (understanding the intentions of the Texas Legislature by introducing House Bill

3246).

137. Tex. Nat. Res. Code § 122.002.

138. Id.


as Permian Production Booms, (Nov. 2, 2019) https://www.currentargus.com/story/

news/local/2019/11/03/chevron-recycles-reuses-fracing-water-oil-gas/4121964002/ [https://

perma.cc/5XTF-LJEK]; see generally Institute for Energy Law, 6th Midstream Oil and Gas

Law Conference, Transporting Water for Oil and Gas Development: Problems,

Opportunities and Potential Solutions, (Dec. 2019) (copy on file with author) (discussing the

contractual relationships between parties at all stages of the fracing operational process).




http://www.diamondbackenergy.com/static-files/5ab827ab-4b26-



504 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 away from the fracing well.

140 Prior to injecting the waste in a deep-water

injection well, the waste treatment company would fill very large tanks with

the liquid waste, skim as much leftover hydrocarbons off the top, and sell

what they could (this is how they made a profit).141

The rest would be

deposited in the saltwater disposal well. The operation of the waste disposal

company treating the liquid waste—albeit one could say treating the waste

to ensure all hydrocarbons are harvested for the beneficial use of not

returning hydrocarbons into the ground—could meet the meaning of

Natural Resource Code Chapter 122.002.

While the House Research Organization bill analysis states “recycling

and treatment,” the final bill and Code are moot in describing the way

treatment of waste for a “beneficial use” are supposed to occur.142

While the

bill analysis helps us understand the problem to be solved, the enacted

statute must be taken on its face. Without defining “beneficial use” in the

enacted statute, the threshold operators must meet to effectuate the transfer

of property ownership is ambiguous. Therefore, the specific intent of the

legislature to incentivize post-fracing waste water treatment may not be

realized.

IV. As Applied, Texas Natural Resource Code Chapter 122.002 is a Taking

The relationship of real property in Texas has been balanced through

jurisprudence, proprietary doctrines, and, when necessary, legislative

statutes. This balance has defined an oil and gas industry that has led the

world in ground breaking technology and exploitation practices. However,

it takes two to tango.143

Operators could not exploit minerals without the

rights given to them under the law (express or implied) or by agreement via

the surface owner. Therefore, legislation taking property from one estate to

give to another outright without compensation not only goes too far, but

effectively diminishes that original property value to zero.





141. Id.

142. Tex. Nat. Res. Code § 122.002.

143. See generally Gabriel Collins, How Produced Water's Economic Value is Evolving

in the Permian Basin, Shale Play Water Management, 22 October 2019, Houston, TX

(describing the multi-tiered decision-making process when operators think about treating

produced water).



A. Current Interpretation of the Regulatory Taking Doctrine

The current regulatory taking doctrine has been relatively unchanged

since the Supreme Court decided Penn Cent. Transp. Co. v. New York

City.144

The Penn Central decision outlined factors by which courts apply to

determine if government action, although not a direct invasion, has

constituted a taking.145

By focusing on the nature and extent of the

regulation, the analysis will always be one of degree.146

However, it is well

settled when regulation goes to a degree as to effectuate a total conversion

of value without compensation, it is a taking.147

Total conversion is

construed as a regulation denying “all economically beneficial or

productive use of land.”148

Even when the government regulation does not effectuate a total

economic deprivation of the property, the Court will weigh factors to

determine the validity of the taking claim, including: the economic impact

of the regulation; interference with investor backed expectations; and the

“character of the governmental action.”149

The Supreme Court has made it

clear, property rights well established according to state law will be

respected.150

However, to that extent, property rights cannot be confiscated

by the government in favor of one party to the detriment of another.

Following the United States Supreme Court, the Texas Supreme Court

outlined two distinct categories for analyzing whether a regulatory taking

has occurred.

One is where regulation ‘compels the property owner to suffer a

physical ‘invasion’ of his property.’ The direct, physical effect

on property, though short of government possession, makes the

regulation categorically a taking. Another is “where regulation

denies all economically beneficial or productive use of land.” To

144. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646 (1978).

145. Id. (articulating that: “this Court focuses rather both on the character of the action

and on the nature and extent of the interference with rights”; see also Pa. Coal Co. v. Mahon,

260 U.S. 393, 43 S. Ct. 158 (1922) (arguing that property regulated by the government can

be taking if “it goes too far”).

146. See Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 673 (Tex. 2004).

147. See Pa. Coal Co. v. Mahon, 260 U.S. 393, 43 S. Ct. 158 (1922) (arguing that

property regulated by the government can be taking if “it goes too far”)

148. Murr v. Wisconsin, 137 S. Ct. 1933, 1942 (2017).

149. Id. (describing the factors courts should consider in takings cases); Connolly v.

Pension Benefit Guaranty Corporation, 475 U.S. 211, 225 (1986) (describing the factors

courts should consider in takings cases); E. Enters. v. Apfel, 524 U.S. 498, 519 (1998)

(describing the factors courts should consider in takings cases).

150. Id.



deprive an owner of all economically beneficial use of land is

tantamount to depriving him of the land itself. But this is

‘limited to ‘the extraordinary circumstance when no productive

or economically beneficial use of land is permitted’” and ‘the

landowner is left with a token interest.’ In addition to these two

situations, the Supreme Court has stated that regulation ‘effects a

taking if [it] does not substantially advance legitimate state

interests.’151

With regulatory taking jurisprudence not as evolved as most constitutional

law, the Court cautions lower courts to look the totality of circumstances

surrounding the actions of the government, and must include “a fact-

sensitive test of reasonableness.”152

Because the government is not

physically invading the water rights of the surface owner, this analysis will

focus on the category in which the government deprives the owner of all

economically beneficial use of the property.153

1. Standard of Review

To determine if a regulation completely deprives the owner of all

economically beneficial use, the court will make a determination of law if

any act by the government that “denies an owner economically viable use

of his land,” that regulation will constitute a taking.154

Following the Lucas

decision, Texas considers the relevant factors to determine whether a

regulatory taking has occurred.155

The Texas Constitution mirrors the Fifth Amendment of the United

States Constitution with respect to regulatory takings.156

While the Texas

Constitution does allow for the taking of private property for public use,

151. Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 671 (Tex. 2004).

152. Id.

153. Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223 (1986) (“[G]iven the

propriety of the governmental power to regulate, it cannot be said that the Taking Clause is

violated whenever legislation requires one person to use his or her assets for the benefit of

another”).

154. Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1016, 112 S. Ct. 2886, 2894 (1992).

155. See Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 671 (Tex. 2004)

(explaining the Texas Supreme Court uses an analogous standard of review for determining

a regulatory taking that the United States Supreme Court); see also Sloan Creek II, L.L.C. v.

N. Tex. Tollway Auth., 472 S.W.3d 906 (Tex. App.—Dallas 2015) (explaining what a party

needs to prove to have a successful takings claim).

156. Compare U.S. Const. amend. I (“nor shall private property be taken for public use,

without just compensation”), with Tex. Const. Art. I, § 17 (“No person’s property shall be

taken, damaged, or destroyed for or applied to public use without adequate compensation

being made”).



Texas clarifies our issue at hand, “‘public use’ does not include the taking

of property… for transfer to a private entity for the primary purpose of

economic development or enhancement of tax revenues.”157

Currently, most Texas regulatory taking jurisprudence surrounds the use

of zoning ordinances or land use regulations. Therefore, it would be

difficult to determine what specific factors in the oil and gas sectors would

be considered by the Texas Supreme Court if this law was to be challenged

today.158

However, with the regulatory taking analysis proscribed by the

highest court in the land—House Bill 3246 as applied in Texas Natural

Resource Code Chapter 122.002 runs afoul of Article I § 17 of the Texas

Constitution.

B. Texas Natural Resources Code Chapter 122.002 is a Regulatory Taking

1. Deprivation of Economic Use

“Determining whether all economically viable use of a property has been

denied entails a relatively simple analysis of whether value remains in the

property after the governmental action.”159

Waste not, want not. Recycled backflow water is not waste. As detailed

above, the process of the operator separating raw oil and gas products from

water prior to refining adds credibility to the notion—the transfer of title of

the surface water should not change just because it went down the pipe and

came back out.160

Historically, any liquid that was unrefined and sold by the operator was

disposed of in deep, salt-water injection wells; this liquid included surface

water that would be disposed of.161

This did not change the nature of the

157. Tex. Const. Art. I, § 17.

158. See Dolan v. City of Tigard, 512 U.S. 374, 384 (1994) (“Each aims to identify

regulatory actions that are functionally equivalent to the classic taking in which government

directly appropriates private property or ousts the owner from his domain. Accordingly, each

of these tests focuses directly upon the severity of the burden that government imposes upon

private property rights. The Court has held that physical takings require compensation

because of the unique burden they impose: A permanent physical invasion, however

minimal the economic cost it entails, eviscerates the owner's right to exclude others from

entering and using her property -- perhaps the most fundamental of all property interests”);

Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987); Kaiser Aetna v. United States,

444 U.S. 164, 176 (1979).

159. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 935 (Tex. 1998).

160. See Tex. Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 390 (Tex. 2011)

(“[w]hether the government's actions are sufficient to constitute a taking is a question of

law).




508 Oil and Gas, Natural Resources, and Energy Journal [Vol. 6 ownership, but the surface owner did not want to pay for nor be responsible

for the transportation and disposal of the flow back water and the operator

was obligated to deal with all wastes of all oil and gas.162

This comported

with current jurisprudence because the operator ceased using the “surface

water” once they extracted the minerals.

However, because operators have created a market for recycled fracing

wastewater, they have profited off property they have no ownership of.163

House Bill 3246 by way of Texas Natural Resource Code Chapter 122.002,

as applied in practice, allows for transfer of legal title of surface water to

the operators at the point the water returns from the pipe. Currently, this

backflow liquid is treated in totality by the Texas Legislature as “waste”

and property of the operator.164

Without compensation of the surface owner

for the surface water taken by the operator, this will violate Article I § 17 of

the Texas Constitution.165

Regardless of House Bill 3246’s intent, which seeks to clarify the

relationship between operators and third-party disposal or waste

transportation companies, the resulting consequence following this “state

action” is what surface owners will challenge, being the reduction of the

pecuniary value of the backflow recycle water to the land owner to zero.

In Texas, groundwater is a vested property interest.166

That property

interest is specific, has value, and is transferable. This classification, as









(State Bar of Texas, Fall 2017) (explaining the market operators have created by recycling

waste water).






ZG7C-3PGQ] (“[t]he premise of the legislation is that this is an oil field waste issue and not

a water ownership issue”).

165. See Tex. Const. Art. I, § 17 (outlining what would constitute a regulatory taking

which would violate the Texas Constitution).

166. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 831-32 (Tex. 2012) (holding

“In our state the landowner is regarded as having absolute title in severalty to the oil and gas

in place beneath his land. The only qualification of that rule of ownership is that it must be

considered in connection with the law of capture and is subject to police regulations. The oil



previously mentioned in this comment, allows the operator to take the water

after its usufruct has expired, make it more valuable, and profitable for the

water owner. Once an operator invokes the terms of Natural Resource Code

Chapter 122.002, without bargaining for the property, they render the

surface owner’s property—water used for operations and recycled—

valueless. In effect, the surface owner is left with no economic value of the

property, violating Article I § 17 of the Texas Constitution.

2. Substantially Legitimate State Interest

The government may affect a partial taking if there is a “substantially

legitimate government interest,” such as encouraging recycling water.167

Even though Texas Natural Resource Code Chapter 122.002 produces a

total conversion, if the statute only produces a partial conversion of the

surface owner’s property, it would not violate Article I § 17 of the Texas

Constitution. However, because House Bill 3246’s intent does not match

the statute in practice, any state interest would not be substantial enough to

survive constitutional scrutiny.

The strongest state interest, subtly outlined in the bill’s analysis, would

incentivize operators to recycle water used during fracing operations.168

By

incentivizing recycling, less virgin groundwater would be needed for

extraction by operators.169

The legislature believed if operators were given

statutory ownership of all post-fracing waste, including water, they would

be more inclined, not only to recycle the waste water, but also to use it for

further fracing operations. The state’s reasoning is flawed in the

assumptions it relies on. So far, operators already have access to the

necessary amount of fresh groundwater they need. Operators recycle

wastewater to use it in future fracing operations, and the amount of

freshwater operators extract will not decrease as a result of statutorily

defined ownership.

and gas beneath the soil are considered a part of the realty. Each owner of land owns



value).


(explaining the scope by which courts will differentiate police powers and takings).


86th Leg., R.S. (2019) (explaining that operators are less likely to recycle water if they

cannot profit from it).

169. See Shale and Tight Resources, https://www.chevron.com/operations/shale (last

visited Dec. 29, 2019) (describing how a large producer has taken advantage of water

recycling technology in the fracing industry).


http://www.chevron.com/operations/shale


With the “grey area” solved by the legislature, operators have no reason

to extract less fresh ground water. The legislature assumed operators were

not recycling waste water because of the legal “grey area” of

use/ownership.170

To some degree they were, and in those cases, operators

preemptively entered into surface-use agreements or water-use agreements

with surface owners. However, operators have used recycled waste-water

for years.171

Further, with this legal “grey area” resolved, operators have no reason to

use less fresh groundwater or use recycled wastewater in their current

fracing operations, only to treat for a “beneficial use.”172

With these

assumptions animating the intent of the statute, the practical reason for the

operators to recycle waste water is because they are incentivized by House

Bill 3246, and are far more likely to profit from cost savings from reuse, or

the potential income derived from selling the water.173

The statute’s change in wording, compared with the legal practicality it

has produced, was advertised as making a molehill out of a mountain;

changing the language was to clarify an ambiguity in the last stage of a

multi-tiered operation separate from any legal obligations. This would be

the case, if the operator already owned the water mountain.

3. Proper Exercise of Police Power?

The same case the Texas Supreme Court used to outline the vested

property interest of groundwater begins with the surface estate, it also

predicted future constitutional takings claims regarding groundwater:

“Suppose a landowner were prohibited from all access to

groundwater.*.*.*‘[G]iven that there is a property interest in groundwater,

some manner and degree of groundwater regulation could, under some

facts, effect a compensable taking of property.’.*.*.* [G]roundwater rights

are property rights subject to constitutional protection.”174

There is no question the power of the legislature to regulate all aspects of

exploring and exploitation of natural resources; Texas has made great leaps

in its history to protect water as a natural and finite resource.175

“All


86th Leg., R.S. (2019) (explaining that operators are less likely to recycle water if they

cannot profit from it).

171. Id.

172. Id.

173. Id.

174. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 833 (Tex. 2012) (describing

the exact situation in which this comment seeks to shed light on).

175. See generally Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 835 (Tex. 2012)

(outlining the way the legislature has historically regulated natural resources).



property is held subject to the valid exercise of the police power.”176

However, the Texas Supreme Court foreshadowed the issues addressed in

this comment—allowing the operator to gain ownership through a state

action deprives the surface owner “all access to [their] groundwater.”177

Because the Texas Supreme Court has held groundwater rights of the

surface estate are to be constitutionally protected analogous to oil and gas

vested property interests, surface owners looking to challenge Texas

Natural Resource Code Chapter 122.002 could rely on Edwards Aquifer

Auth. v. Day, Robinson v. Robbins Petroleum Corp., Humble Oil &

Refining Co. v. West, and current operator practices to prove the violation

of Article I § 17 of the Texas Constitution.

V. Conclusion

Looking to evolve and innovate the common practice of post-fracing

waste management, operators invested millions of dollars to recycle post-

fracing waste water for further use on the same tract of land, on a different

tract of land, or for sale to other industries. By selling recycled water or by

using it on other tracts of land, operators created an economy that not only

reduces their operating costs, but can also be said to limit their

environmental impact. Understanding the balance of rights Texas provides

to both mineral and surface owners, operators looked to the Texas

Legislature to codify this practice and solidify proprietary rights—at the

expense of the surface owners.

The real property doctrine of correlative rights creates a usufruct interest

in the groundwater allowing the operator to use the water to exploit the

minerals for benefit of the land or acreage pooled therewith. The statute

then attempts to expand the usufruct right of use into an ownership interest

in the backflow water. Other states will likely look to House Bill 3246 as a

guide to codifying post-fracing recycled waste. With that being said,

caution must be taken. Correlative rights permeate through American

common law like the hydrocarbons located in fraced fissures, legislatures

must take care to account for them in future legislation.


(explaining the scope of police powers that have been allowable by the Texas Legislature).

177. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 835 (Tex. 2012)

(understanding the ownership aspects of groundwater by surface owners).


Documents

Yours, Mine, Our Water: Where Correlative Rights End and